|Minimum Investment||$2,500||$5 million|
The Cambiar SMID Fund is a team-managed portfolio designed to capitalize on mid-cap investments previously limited in scope within existing Funds. The Fund is an equal weighted portfolio with a starting universe of companies in the $2-$10 billion market cap range.
The portfolio leverages Cambiar's tenured domestic investment team, who on average have over 20+ years of industry experience.
Andrew P. Baumbusch
Colin M. Dunn, CFA
The performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Investor Share Class: Expense ratio is 1.34% (gross); 1.01% (net). Institutional Share Class: Expense ratio is 1.29% (gross); 0.96% (net). Cambiar Investors, LLC has contractually agreed to reduce fees and reimburse expenses in order to keep net operating expenses from exceeding 0.95% of the average daily net assets of each of the Fund’s share classes until September 1, 2017. Absent these waivers, total return would be reduced. The Russell 2500® Index measures the performance of the 2,500 smallest companies in the Russell 3000 Index. The Russell 2500® Value Index measures the performance of those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values. The Russell Indices returns do not reflect any management fees, transaction costs or expenses. Individuals cannot invest directly in an Index.
The fund charges a 2.00% redemption fee on redemptions of shares held for less than 90 days.
|Top 10 Holdings||% Weight|
|Robert Half Int'l||2.9|
|East West Bancorp||2.9|
|Booz Allen Hamilton||2.7|
|% of Total||28.8|
|Holdings Subject to Change|
|Attributes||Cambiar||Russell 2500||Russell 2500V|
|Market Cap Wtd Avg||6.4 B||4.2 B||4.1 B|
|Market Cap Median||6.2 B||1.1 B||1.0 B|
|Sector Weights||Cambiar||Russell 2500||Russell 2500V|
|Risk Statistics*||Cambiar||Russell 2500||Russell 2500V|
Market Review (12.31.2016)
U.S. equities posted strong gains in the fourth quarter, capping an 8th consecutive year of positive returns for stocks (as measured by the S&P 500 Index). The fourth quarter brought with it new record highs for most market averages, as the outcome of the Presidential Election catalyzed investors into believing that a pro-business Trump administration will reverse the stagnant growth in the economy. Small cap stocks outpaced their larger cap counterparts, given these companies’ home country revenue concentration and therefore less impact from a stronger dollar. While in the aggregate stocks are beginning to approach more extended valuation levels, the current environment does not possess the investor euphoria that often presages the end of a stock market cycle. That said, the next leg higher will likely be an earnings growth story, as multiple expansion has largely run its course.
Active vs. Passive - Darkest Before Dawn?
2016 marked another year of asset rotation from active managers to passive investment vehicles. The urge to index has become overwhelming, and it is hard to argue with its effectiveness in the current cycle.
Not surprising, Cambiar is a proponent of active investing. On an intuitive basis, the idea that qualified individuals making decisions about what companies may be good investments vs. companies to avoid because they are overpriced or engage in bad business practices just makes sense to us. Part of the intrigue in active management is the price-discovery process. Stocks can theoretically trade at any price that buyers or sellers choose to transact. But in practice, if XYZ stock falls below a certain level, buyers tend to emerge and sellers tend to disappear. That’s how price floors or ceilings emerge. This process still holds true today, but the market ecology is much different. Passive vehicles have no reactivity to the price-discovery process – they won’t buy more shares of XYZ however low the price might go.
An underappreciated element to the current active/passive discussion is the cyclical nature of investing. Think growth vs. value, domestic vs. international or small cap vs. large cap. The same can be applied to active vs. passive. The current run of passive has been longer than past cycles – that said, we believe the ultra-low interest rate environment that has been in place may be more than just coincidental on this front.
One metric that may begin to provide a tailwind to active management is a decrease in equity correlations. According to Strategas, correlation among stocks in the S&P 500 Index fell to a 10-year low in December. This environment should therefore place greater emphasis on security selection. The walk back towards normal monetary policy is an additional consideration that is likely to produce a profound shift in relative winners and losers. Companies that benefited from a low cost of capital may be challenged, while steepening yields would be unambiguously positive for financials yet a headwind for bond proxy sectors of the market.
All of the above may be interesting sound bites; however, performance is the key proof statement. It will take sustained excess returns from active management to reverse (or perhaps slow) the flow to passive strategies. Cambiar is encouraged by the improved returns we have achieved in recent quarters, but recognize that more follow-through is required on this front. The table is set for active management – it is now time to deliver.
The Cambiar SMID Fund participated in the fourth quarter surge in stocks, outperforming both the Russell 2500 Index and the Russell 2500 Value Index. After falling behind the benchmarks in the first half of 2016, the SMID strategy executed a strong rebound in the third and fourth quarters – benefitting from a combination of positive stock selection as well as the portfolio’s cyclical tilt.
On a sector level, the primary beneficiaries of investors’ increased sentiment towards stocks were more economically sensitive in nature – namely, Financials, Energy, Industrials and Technology. On a full-year basis, all eleven economic sectors produced positive results, illustrating the broad-based nature of the equity rally in 2016. This across-the-board melt-up in stocks also speaks to the challenges of active management in such an environment; with all sectors positive, and for the most part clustered in their returns, active managers were hard-pressed to achieve any positive separation vs. their benchmark. With that said, intra-sector volatility did increase in the fourth quarter, thus allowing for active managers such as Cambiar to add value. We are cautiously optimistic that this trend will continue into 2017 – which would potentially set up the SMID Fund for a strong year of excess returns.
Financial Services constitute a significant portion of the SMID strategy’s benchmarks – approximately 15% in the R2500 Index and 24% in the R2500V Index. Cambiar’s approximate 20% allocation to Financials over the course of 2016 provided the portfolio with meaningful exposure to this top-performing sector, and was a notable positive contributor for both the fourth quarter as well as on a full-year basis. While being in the right sector helped, the companies held by Cambiar were also a key driver – as the SMID portfolio’s aggregate financial holdings outperformed the benchmark (R2500 Index) by approximately 1200 basis in the quarter (as well as by 1150 basis points for the year). Company-specific fundamentals will always be the primary input to the buy/sell decision of an individual position; that said, an improving economic growth outlook, steepening yield curve and potential deregulation from the new administration could provide a healthy backdrop to this sector in 2017.
The SMID Fund was also the beneficiary of merger and acquisition activity in the quarter. Although takeout potential is not a consideration in Cambiar’s initial investment thesis, potential acquirers are often attracted to many of the same underlying attributes – strong balance sheets, market-leading positions, and reasonable valuations. Long-time holding Harman International was acquired by Samsung Electronics during the quarter, which will enable Samsung to enter the automotive infotainment market. Shares of Harman moved higher in response to the offer and Cambiar liquidated the position shortly thereafter.
Another relative bright spot for the Fund came from what the portfolio didn’t own – i.e., Cambiar’s non-participation in Utilities and limited exposure to Real Estate. Our third quarter commentary noted the bubble-like conditions that had begun in the STUB trade (staples/telecom/utilities/bonds); there has been some validation to this view, as these sectors have subsequently weakened in favor of more cyclical areas of the market. Although valuations in Utilities are becoming more reasonable, the sector remains more of a wait-and-see in terms of investment appeal.
While Cambiar’s residual cash position typically results in only a modest performance impact in most time periods, the portfolio’s ~6% cash allocation detracted approximately 75 bps from return in the fourth quarter’s melt-up. Cash was also a drag on a full-year basis. Another source of relative underperformance in the quarter was Technology, where Cambiar’s holdings were unable to keep pace with the index. Technology was also an Achilles Heel for the portfolio on a full-year basis. Two of the notable underperformers (Verifone and Synaptics) remain in the portfolio. After a frustrating year with these two holdings, we are confident that 2017 should bring improved operating performance – and with it a higher stock price.
The fourth quarter concluded an impressive year of gains for U.S. equities: the S&P 500, Nasdaq Composite and Russell 2000 Index each notched all-time highs, and the Dow Jones Industrial Average closed in on the 20,000 milestone. Consumer confidence is at the highest level since 2001, based on upbeat prospects for the economy, labor market and income growth. At a high level, the market’s optimism appears warranted – lower corporate taxes, job growth and a less onerous regulatory environment are all positives. Yet the road from here is likely to get a bit bumpier, as the timing and pace of implementation may fall short of expectations. In aggregate, Cambiar is cautiously optimistic on the outlook for stocks; however, we do not expect 2017 to be smooth sailing.
With valuation metrics for the broader market nearing prior peak levels, the risk/reward is becoming more asymmetric to the downside for an increasing number of stocks. This does not mean that the market cannot move higher; rather, the point here is that a naive passive portfolio may be less desirable vs. an actively managed portfolio that can identify attractive valuations while avoiding the more expensive segments of the market. While investors appear to be taking a glass half-full view on the outlook for 2017, Cambiar is taking a more balanced approach in assessing the upside for the stocks we’ve invested in. While company-specific fundamentals remain the driving force behind our buy/sell decision, market risks include the potential for a strong dollar, the market’s digestion of additional rate hikes by the Federal Reserve, and an unexpected uptick in inflation. As multiple expansion has likely run its course, upside from here will be more heavily dependent on earnings. Time will tell…but on this basis, we like our chances as we head into the new year.
Mutual fund investing involves risk, including the possible loss of principal. In addition to the normal risks associated with investing, investments in smaller companies typically exhibit higher volatility. There can be no assurance that the Fund will achieve its stated objectives.
To determine if a Fund is an appropriate investment for you, carefully consider the Fund’s investment objectives, risk factors and charges and expenses before investing. This and other information can be found in the Fund’s prospectus which can be obtained by clicking here or calling 1-866-777-8227. Please read it carefully before investing. There is no guarantee that the Funds will meet their stated objectives.
The Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. CAMMX was rated against 337 Mid-Cap Value funds over a three year period and 301 funds over a five year period. With respect to these Mid-Cap Value funds, CAMMX received a rating of 2 stars for the three year and 2 stars for the five year period, respectively. Past performance is no guarantee of future results.
Price/Earnings F1Y is a calculation that divides the current share price by the estimates of earnings in the next four quarters. Debt/Equity - Long Term is a calculation that takes interest bearing, long-term debt divided by shareholder equity. EPS Growth - Long Term is a calculation that takes the company’s estimated profits for five years divided by the outstanding shares. Active share is a holdings-based measure of active management representing the percentage of securities in a portfolio that differ from those in the benchmark index. Alpha is a measure of risk-adjusted performance. Beta is a measure of risk in relation to the market or benchmark. The Sharpe Ratio is a direct measure of reward-to-risk and is calculated by subtracting the risk free rate from the rate of return for a portfolio and dividing the result by the standard deviation. Standard Deviation is a statistical measure of historical volatility; a measure of the extent to which numbers are spread around their average. R-Squared measures how closely a portfolio’s performance correlates with the performance of a benchmark index. These calculations are not a forecast of the Fund’s future performance.
Performance data quotes are past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. For performance data current to the most recent month-end, please call 1-866-777-8227.
The Russell 2500 Index measures the performance of the small to mid-cap segment of the U.S. equity universe, commonly referred to as "smid" cap. The Russell 2500 is a subset of the Russell 3000® Index. It includes approximately 2500 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2500 Value Index measures the performance of the small to mid-cap value segment of the U.S. equity universe. It includes those Russell 2500 Index companies with lower price-to-book ratios and lower forecasted growth values. Indexes are unmanaged and one cannot invest directly in an index.
As of 12.31.16, the Cambiar SMID Fund had a 0.0% in Harman International, 0.0% in Samsung Electronics, 2.2% in Synaptics and 2.3% in Verifone.
This material represents the portfolio manager’s opinion and is an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice or a specific recommendation of securities.
Cambiar Funds are distributed by SEI Investments Distribution Co., 1 Freedom Valley Dr Oaks, PA 19456, which is not affiliated with the Advisor. Cambiar Funds are available to US investors only. Strategies included within the Institutional Investor offer are not mutual funds and are not affiliated with SEI Investments Distribution Co.